Start-Up Nation

How seven million people surrounded by enemies created innovation magic.

The premise for Start-Up Nation: The Story of Israel's Economic Miracle, by Dan Senor and Saul Singer, is simple. How has a nation of just seven million people, only a little more than 60 years old, surrounded by enemies and with no natural resources, produced more start-up companies and produced more Nasdaq-quoted companies than Europe, Japan, China, India and Korea combined? What magic dust does Israel possess to foster this entrepreneurial spirit?

This book tries to answer that question, while also examining the potential threats to Israel’s future wellbeing. It has a lively opening with case studies of innovation from recent years including one about a young Israeli who has developed a car battery that could make electric vehicles financially viable.

Instead of plugging in the car for hours on end to charge up, you would simply pull in to a battery swap station and go through a machine resembling a car wash. Your battery is dropped out and replaced by a newly charged one.

You pay your fee as you would for petrol and then carry on your journey. And it shouldn’t take more than a couple of minutes. Simple.

The idea was developed by Shai Agassi, who set up a company called Better Place to develop the technology. He was helped along the way by Israel’s commitment to eliminate its dependency on motor vehicles powered by oil, which is largely controlled by its Arab neighbours.

After a few false starts, Agassi raised $200 million for the venture, making it the fifth biggest start-up in history. It was supported by Renault and Nissan and Israeli billionaire Idan Ofer and is now being trialled in places like Denmark, Canada and Hawaii.

When it was founded in 1948 as a homeland for the Jews, Israel was a geographically small and arid territory.

To survive, it had to become self sufficient in so many different ways. In the early years, that meant devising innovative irrigation systems to nourish the desert soil and allow for agricultural use and to counter food rationing.

The constant influx of Jews from around the world has also played a key part in the country’s growth, bringing in new skills and ideas and swelling the domestic market for goods, which was important in the context of an Arab boycott.

The Israeli military also lies at the heart of much of the innovation, with many ex-soldiers heading up leading tech companies.

Young people are thrust into frontline positions, making potentially life and death decisions in a split second. You grow up quickly in that type of environment.

Conscription means that every young adult serves in the Israeli Defense Force (IDF), with the smartest students cherry-picked for the elite wings of the military. Israel is on a constant state of alert and these young people are often thrust into frontline positions, making potentially life and death decisions in a split second. You grow up quickly in that type of environment.

The authors argue that Israel benefits from having stable institutions and rule of law that exist in advanced democracies while also having a non-hierarchical culture, where everyone in business belongs to overlapping networks produced by small communities, common army service, geographic proximity and informality.

And the Israeli military has also sought constantly to innovate; to stay one step ahead of its enemies in terms of technology, hardware and intelligence. The Israeli government commits significant funds to research and development for the IDF.

But why has Israel been more successful than Korea, which also has a draft and a significant external threat?

Korea is home to a large number of tech companies but Israel has a far higher percentage of start-ups. “The fear of losing face and the bursting of the internet bubble,” holds Korea back, says Laurent Haug, creator of the Lift conferences, which focus on the “nexus of technology and culture” and alternate each year between Switzerland and Korea.

“In Korea, one should not be exposed while failing.”

Israelis, meanwhile, “don’t care about the social price of failure”.

But what of the future? Israel blossomed in the 1990s through the boom in technology, a massive wave of immigration from the former Soviet Union and the 1993 Oslo Peace Accords.

But immigration has slowed to a trickle while the peace that existed was shattered by a wave of suicide bombings and the standoff in Gaza, which has hit the tourist industry.

With global venture capital funding drying up, “thousands of workers in the tech scene” have been laid off. There are also concerns that Israel’s lead in academia is slipping, with large numbers of professors moving abroad.

And the threat of Iran also hangs over the region. “The first-stage Iranian goal is to terrify Israel’s most talented citizens into leaving,” is the bleak assessment from prime minister Binyamin Netanyahu.

The quality of life is also deemed to be lower than the West with Israel enacting a 10-year tax holiday on foreign income to try and entice people to return to the country to live.

The book concludes with a synopsis of a long meeting between the authors – both American Jews – and ex-PM Shimon Peres, also a former Nobel Prize winner. His advice is to forget the “old industries.” Pick five new ones and go for them hammer and tongs. Be a world leader. It sounds like good advice.

Visitor Comments: 8

If you're so passionate about Israel, why don't you invest in Israel? Buy Israeli stocks or funds. You can do it all online and contribute.

(6)
Ben Powers,
July 26, 2010 6:42 PM

Nice, but misses the point

The authors of the book and the article, though well meaning, have missed the point. Any honest observer must admit that human effort alone is insufficient to explain the success of the Jewish State, especially considering the challenges she has faced. Only Hashem's help and guidance has brought Israel to where it is now. The sooner we as a society are able to talk openly about it, the better off the whole world will be.

(5)
Leon Stern,
July 26, 2010 5:32 PM

Divine assistance

Maybe Israelis are no smarter than anyone else. Maybe they have the benefit of Divine assistance?

Corin,
February 11, 2012 4:52 AM

Maybe a bit of both?

The Torah was crafted by G-d to be a guide to righteous living and to finding Him. It also serves the purpose of being a wonderful source for education, in order to be a good Jew you must learn the Tanakh and Talmud. This translates into secular studies as well and as a result Jews have the highest collective IQ out of any people in the world. Obviously if G-d didn't intend it then it wouldn't happen, and G-d has obviously blessed the Jews with gifts as he promised (and w/ curses for their disobedience, as he also promised). Either way, G-d gives the Jews more attention and guidance than the other nations and we should be proud to be his representatives in the world and try to be worthy of the honor as best we can. Israel is just more evidence for Hashem's greatness, but one need only look at nature to see how wonderful the Lord is.

(4)
Anonymous,
July 26, 2010 11:22 AM

I include Start Up Nation when I speak in US and Israel

I have included Start Up Nation stories and ideas over the last four months, when I have spoken in US and Israel. I add something of my own historical facts plus the main theme that Rabbi Meir Kahane calls the three letter word. Start Up Nation is superb PR for Israel and I add to it that G-d gave this Land to the Jews and guaranteed Jews survival. I add to it that Rabbi Avigdor Miller calls us a Torah Nation and that is our signature. I add to it my ideas to develop Israel with entertainment that is full of morality and not fantasy. And can come up with employment for another one million Jews now. Contact me. Close you eyes and picture 8 million Jews returning this week to Israel. I add to it alot of prayer and hope, thank the three letter word G o d.

(3)
Brian Rosenzweig,
July 26, 2010 7:21 AM

Americans go to invest in Israel after this book

Take a look at this article from YNET -- shows what type of operations are out there to get Americans more vested in the Israeli start-up market: http://www.ynetnews.com/articles/0,7340,L-3913022,00.html

(2)
Baruch,
July 26, 2010 6:20 AM

When I lived in America, we spoke of being proud that America was clearly blessed and of our strong Protestant work ethic. Why do these authors have a problem saying similar things? They seem to have correctly assessed every reason for Israel's successes except for two of the best-known-in-the-world, core sources: Israel is blessed and everyone knows that Judaism, Torah and Jews have the strongest of all learning ethics, so central to success in technological endeavors.

(1)
Marilyn Shecter,
July 25, 2010 11:50 PM

Perfect timing! I just finished reading this today. It is a great book and I recommend it highly. It provides a wonderful look into the many reasons behind Israel's many success stories.